SEP Plan Amendments

[amadeus229]

I have a question concerning amending a SEP plan:

Employer adopted an individually designed SEP plan in 1995 and has not amended the plan since its adoption. In order to correct this problem, can the employer amend the individually designed plan by adopting a prototype SEP plan administered by a financial institution that has already been approved by the IRS? And, if the answer is yes, does the employer then have to use the VCP to inform the IRS of the adoption of the prototype SEP plan?

Any comments would be appreciated.

[Gary Lesser]

Generally speaking, the SEP plan went bad after 2002 (see Section 4 of Rev. Proc. 2002-10, below)--

SECTION 4. ADOPTION OF REVISED IRAS, SEPS AND SIMPLE IRA PLANS

.01 Model IRAs. The Service expects to issue revised model IRAs in early 2002

containing EGTRRA changes and required minimum distribution rules that comply with

the final regulations. Existing model IRAs may not be used to establish new IRAs after

June 1, 2002. An individual using an existing model IRA who wants to take advantage

of the 2002 EGTRRA changes to IRAs in 2002 must adopt a revised model IRA (or an

appropriate amended prototype IRA) by the end of 2002.

.02 Prototype IRAs. An individual using a currently approved prototype IRA

must adopt either (1) the prototype sponsor's amended document within 180 days after

the date the Service issues a favorable EGTRRA opinion letter on the amended

document or (2) an appropriate model IRA by the end of 2002.

That being said, the EPCRS can be used to fix the problem, it should only cost $250 (application fee) and 10% of the plan assets (retention fee). It can not be fixed without service approval. There may be several "closed" years that need to be considered (see a Pension lawyer). The 10% nondeductible penalty tax would apply for all years unless Form 5330 has been filed or the excise tax waived by the Service under the EPCRS.

Hope this helps.

[Borsley]

Related: where do you find information on when the IRS requires individually designed SEP plans to be updated for new laws and regulations?

The previous comment mentioned the need to update in 2002 for EGTRRA. If I'm not mistaken, there was a later requirement to update to changes related to PPA. I could be wrong about that.

Bottom-line - is there a one-stop source that would list out the updates and when they were required?

[Belgarath]

Hi Gary - do you have a citation for requiring an additional 10% in this situation? I'd have just filed with the $250 fee and included a new, signed, SEP (or SIMPLE if this were a SIMPLE plan) IRS model document...how is an employer even going to know the amount of "plan assets" if there are individual IRA's all over the place - employees might not even be willing to provide the account balance information.

Thanks.